Dan Ariely - Unraveling the Mysteries of Human Behavior

it is my distinct honor and pleasure to ask you to rise and give a warm welcome to our guest speaker professor Dan Ariely who will speak on the theme unraveling the mysteries of human behavior great so thanks for showing up before before we start you might have noticed I have half a beer you might have wondered what bet I lost so I didn't lose the bet I was badly burned many years ago most of my body is covered with scars including the right side of my face it just so happened that the scars are kind of sort of symmetrical but I didn't plan that and I'm not proposing a half views I'm not promoting them okay so my name is Donna really I had kind of three professional lives I have a research lab at Duke called the Center for advanced hindsight and we studied mostly how people make financial decisions and health most in the US a little bit in the rest of the world mostly in Africa and Second Life I have is I have a group in Israel working only with the Israeli government they're trying to change policy to be behaviorally informed for example a couple of months ago we change how food is labeled in Israel right now we're using the we change this you know in the u.s. you have like a little there's a lot of reading on the side of the of the boxes and nobody reads that and it doesn't change behavior we move to a system of big red circle bad food big green circle good food in the middle there's lots of stuff we don't do it we we studied it thoroughly we show that it was a better approach in January first it was implemented and so far it looks very good but you know we'll see what happened so we're we're a group of people that study how to do positively informed by what people actually do and then we try to get the government to do then anyway lots of thing to say what is really good and then I have a third life which is from time to time I have ideas that I like and nobody else likes and then I do a startup to try and push that but the idea that maybe I'll tell you about a couple of those ok but it's all about changing behavior so so let's talk a little bit about changing behavior and you know when we try to think about the state of the world it's very clear that the state of the world is not we would have liked this to be there's a big gap and the question is how can we narrow that gap what what are people doing right now that we wish people would act different and it's always easy to talk about other people but we can also introspect and think about ourselves a little bit so for example how many people in this room in the last month has eaten more than you think you should just enough a general census hey how many of you in the last month have exercised less than you think you should okay how many of you in the last month have not slept enough how many of you in the last month have at least once texted while driving okay how many of you in the last month have not always washed your hands when you went to the bathroom I do research on dishonesty I'll ask you last last question how many of you have ever not last month I have ever head unplanned a unprotected sex amazing amazing amazing so so if you think if you think about all of those behaviors texting and driving not washing your hands it's clear there's a big gap between what we know is the right thing and what we actually do how do we how do we bridge those and and when we think about how do we bridge that we are intuitive answer is to give people information right if people don't do the right thing we'll just give people more information and for example if people smoke they just must not know that he's dangerous to their health let's tell them that it's dangerous let's give them pamphlets disbander and if people only knew they would stop immediately or if people text and drive let's tell them if it's dangerous so let's give them fines by the way in the US there are states that have fines for texting and driving and have state that don't have fines now you know what happens in states that introduce fines excellent rate went up down low didn't change went up why because instead of texting over the wheel people started texting under the wheel right if you look if you look for evidence that there's no limit to you in stupidity that's exactly oh it's dangerous let me make it more dangerous by the real punishment by the way for texting and driving is dying and killing other people the thousand dollar fine is is small the small issue so so we usually think that it's about giving people information if we just gave people information they would they would make the right decision but there's actually no evidence for this it's not true for smoking it's not true for texting and driving it's not true for all kinds of things that's the bad news by the way another place where it's wrong is in the area of what's called financial literacy you know there's a there's a lot of attempts to teach people how to deal with money in the u.s. we spend between seven and eight hundred million dollars a year on financial literacy different courses classes teach people how to deal with money and the first question is do people remember the answer is yes not everything but they remember some of it great news or - people act differently and here the answer is no if you look at saving budgeting planning saving all of those things and you say how much improvement do we get for seven to eight hundred million dollar investment the improvement is zero point one percent not zero but as humanely close to zero as possible and so basically we spend a lot of money on teaching people the right thing to do but but then we also arm people with credit cards and you know you know something in your mind but you have a credit card which one wins the credit card so the sad news of today is that we usually go to let's give people more information as a methodology for improving behavior the answer is that just doesn't work what does work what works is to change the environment when the idea is that if we all want to change how we behave and how other people behave the key is not to change the person the key is to change the environment and by the way we can talk about whether religion is a way to change the person or to change the environment I think it's much more about changing the environment and and we have a very simple model to think about how to do this and we think about changing human behavior is like sending your rocket to space and when you send a rocket to space you have two main tasks the first one is friction how do you make the rocket as aerodynamic as possible so it has the least amount of resistance and then the second part is how do you add more fuel to the rocket and the same thing is true for human behavior we think about is the easy behavior in the right behavior aligned and if they are not it's extra friction and then we say how do we add motivation to friction and motivation friction motivation that's the two the two steps that we take and let's walk through some examples so example number one this is an experiment we did with a company called Express script expression with the PPM they managed from a suitable benefit if some of you get your medication in the mail you might be getting it from extra script and and what basically happened is that you go to doctor your doctor tells you you have a long-term illness and you sign up to get your medication from Express script and you get your medication in the mail every 90 days every night there is medication medication medication medication great but now Express script wants to switch people from getting branded medication to generic medication right so they send people a letter and they say please please please switch to generics you will save money we will save money your employer will save money the world would be a better place and what do you think people do nothing it's best they recycle so they try they try they try to try nothing happens so then for one year they go all out the right people a letter and they say usually your medication your brand and education is let's say $25 and usually the generic is 5 if you'll switch now it will be free for whole year free for all your amazing view right can't get better than that what percentage of people do you think switched slightly less than 10 slightly less than 10 and they were very unhappy at that point they expected more and at that point they called me up to complain why did they call to complain to me I wrote a couple of papers and the allure of free in those papers I showed that if you reduce the price from let's say 10 cent to 1 cent the man goes up a little bit but you change the price from one cent to zero now people get excited right you've all stood in line for way too long for a free ice cream or something right nobody would stand for half an hour in the line to get a dollar 25 but the free ice cream now we stand in line for a long so we show that people are really excited about 3 and they try to frame this look we tried to free you said 3 but it's not what we want like 10% is just not we were hoping for more and I said many people don't like generic medication that's possibility but maybe it's about the friction so they said what do you mean I said let's look at the little details of your design and let's look at the friction in your design people started with branded medication because that's what their physician scribe to them and they can do nothing and end with Brandon if they switch to generic they have to prefer generic to Brandon but they have to also take an action compared to no action and this is what we call a confounded design two things are happening at the same time it's branded and doing nothing it's generic and returning a letter so you don't know if people have branded or life doing nothing if people hide generic will be played returning letters right which one isn't now letter doesn't look like a big deal but maybe it has some role to play so imagine it was you and I said how would you design an experiment two separate people's loves of branded from love of doing nothing how would you propose okay so you could you could say let's change what physicians do from the beginning but you know drug companies hire very attractive people as drug reps and they go to physicians of it not so attractive you're saying and no but but you know drug companies do a lot of effort to get physicians to prescribe brand medication so what can we do at our level so the first proposal was to say let's switch it let's write people a letter and say next time we're switching you to generics you don't need to do anything it will show up automatically if you want to stay with branded please return the letter switch the default what do you think happened lawyers lawyers happen it turns out it's illegal it's illegal to switch medication like this and by the way for brainstorming illegal immoral proposals are okay as long as you don't do it but for brainstorming and and the reason it's a good idea to brainstorm because this is the purity of the idea right we would have loved to do it if we could to understand human nature now it's illegal what can we do we talk to the lawyers and they allowed us to do a t-intersection what's a t-intersection we send people a letter and we say if you don't return this letter we will be forced to stop your medication but when you return this letter you can choose branded the 25 or whatever it is generic at five there's no free on you you see in the original design Brandon had the no action benefit in the illegal immoral design generic had the no action benefit now it's an equal footing you have to return the letter and indeed for more than ten thousand people only two people did not return the letter it was just too costly not to return the letter what percentage of people do you think switched between eighty and ninety percent so what does it say do people like Brandon like generics it means it means people don't like returning letters now when express rapport thinking about it they were thinking about the real decision branded versus generic but the reality that on the day-to-day basis it wasn't generic versus branded it was do I want to deal with this or not and you can ask yourself for those before those people did not return the letter if it could save them $20 a month for the rest of their life who are they well again think about yourself how many of you have a subscription to something you should be canceling some TV stations some app something and if you don't think you have one of those just check your credit card statement you'll discover a credit bureau I mean there's lots of things you're probably paying for and you have no idea it and it's not that we say we don't want to cancel we just say we don't want to cancel tonight but then 2:19 so so the first point is friction and the reason I'm emphasizing this is that even a letter which seems like a small deal is a lot of friction and it gets us to act in different ways and another example how many of you probably have right now rotten in fruits and vegetables in your refrigerators at home why it's just a bad design and the people who design the refrigerator they put the draw at the bottom and they made it opaque and it's good for temperature and it's good for humidity but it's not good for human nature because we open the refrigerator door and we look we're at eye level we could bend it's a possibility it's not it's not that far but it's a little too far so we don't depend and we don't open the draw we do it about 20% of the time we end up looking at eye-level if we just replaced and put it I level the healthy stuff and the unhealthy stuff all the way down there at the draw things would get would get better okay so points number one friction point number two is about motivation right so once we eliminate all the frictions we need sometimes we don't have enough reasons to do the things we want people to do for the long term and we add more motivation and here I'll give you I'll give you a couple of examples this example is from a study we did in Israel the Israeli government asked us to figure out a way to get more girls to study computer science they wanted more boys to study computer science but mostly they wanted more girls to study computer science and you know there's all these computer science lite classes like you do six weeks of computer science and between middle school and high school and the hope is that in high school more kids would study the kind of things that could make them programmers the computer scientists down down the line and and there's many of those courses Google does it and Facebook does it in weeks does it and the Israeli government does it there's lots of these six weeks computer science and and they said look these classes get more kids to study computer science but they're expensive expensive they're complex could you help us digitize them and if they would be digitized maybe we could push them to more people so we said fine but but the scientist me said but first let's test if they work right so what do you think do they work do these classes change the likelihood that kids will study computer science so they make no difference for boys before and after and they make it less likely for girls to study computer by the way this thing that people have been doing for I'm all with good intentions are making things worse now it's very strange results right why would the six weeks computer science like class to get people to be less likely to do so we didn't trust the results fully so we tried it again same result again so now like detectives are we trying to figure out what's going on so what do you think why is it it's hard yeah yeah but but so you could save during summer time but why make it worse for girls maybe too short of a class so we can go in this we can speculate I'll tell you what the results showed so so the first thing we asked was what do the girls think about their ability to do it right what's their competence so what's called sometimes self efficacy what do you think increases they say yes I can do it just like the boys but what also happened is they say this is unbelievably boring I can't see myself working in this line of work because what happened in the sex first six weeks of computer science light you learn how to move a turtle on the screen and at the end of these six weeks the boy said oh my goodness you can get paid for this that's great and the girl said who would ever want to do this is a career so so what what we found out is the girls at that age are looking for something that has meaning and they want to find out that this is a path to do something that they would actually want to do later on the boys are focusing on moving the turtle on the screen they are not really thinking that much the future the girls are thinking about what they want to do in the future so we we ran around and we filmed young people mostly young women that are doing computer science and design computer science and health computer science and something else and we had we passed almost a hundred thousand students through our system when they were choosing what they were going to study for high school and we basically forced them to see these videos that gave a sense of meaning and to to what computer science is all about and and we increased the number of girls by 22 percent who was studying things in high school that could qualify them to be computer computer scientists we also increase the boys but by much less because that intervention was mostly designed for the give me another example and the thing about this is you're really trying to figure out what motivation need to add to the equation think that you have people and you ask yourself are they motivated enough the answer is no what do you want to add in our case we figured that meaning was really missing so we said how do we add that component another another example I'll give you is this is a study we did in Kibera Kibera is Islam in Kenya we were trying to get very very poor people to save a little bit of money for a rainy day what happened is if you're very very poor and you live hand-to-mouth and you have no extra from time to time bad things happen in the US the bottom half of Americans have unexpected expenses that they can't afford about two and a half times a year I think Kenya in happens more they have unexpected expenses the roof is leaking somebody is sick and then what can you do you two options if you have some tools or a bucket or a frying pan or something you can sell them or you borrow and if you borrow it compared it could be up to 10% the week interest rate right it's not banks it's it's money loan sharks and then if you either sell what you have or you borrow that high interest rate things just get worse so we want to have people have some rainy day funds so the first thing we want to deal with is friction so we teamed up with impasse and passes the Kenyan payment company about 20% in Kenya of the people in can you have bank accounts about 90% have MPs icons it's it's like a bank account on your phone it's not really a bank account say it's a wallet on your phone it works on any phone and we teamed up with an investment bank and we created a system where people could put money into their own past account but every night the money moved to the investment bank and the reason this was a good system is that now they couldn't take it back through and Pesa it was just one way so if they won't take the money back they had to take a bus go to the city during work hours fill the form wait an hour get the money come back it could take four or five hours and we wanted that because friction is not always our enemy we just want to align friction with what we want in this case we want easy in hard out because if it was easy in and easy out what will happen they will put in they would take it out so easy in harder so we gave that system to lots and lots of people and then we added motivation to it and again let me ask you if you were going to add motivation wanting to get people to save more what kind of things would you add interest rate perfect what else so so there's lots of ways to give money away right interest bonus outside of money what else give them goals gifts stuff yeah very good what else recognition trying to be nice people here I know these knocking no you're right okay so I'll tell you what we tried em first group control condition is in house nothing else no fuel just friction we just dealt with the friction group number two we reminded them every Friday we send them a text message it said try and save 100 shillings about $2 this week just so you get a sense these people living about $10 a week all right so that's about 10% of drinkable just a reminder try and save tensions another group we send em the same text message but we pretended it came from their kids so it says hi ma'am hi mom hi dad this is Lilly OC or whatever the name of the kid was was never yo see ya try and save a hundred shillings this week for the future of our families of guilt thinking long-term another group got a 10% match save up 200 shillings we'll give you 10% another group got a 20% to match the hundred shillings we'll give you 20% to other groups also got 10% and 20% but they got it with loss aversion what's loss of version loss aversion is the principle that we hate losing more than we enjoy gaining right if you gain a thousand dollars today you would be happy if you lost a thousand dollars you'd be really miserable and for much longer now we can't take money away from those poor people whoever made this hood made a suggestion if they got the text right now and but we can't we can't take away money from from these people they're poor enough as it is but we do want to give them the sense of loss so what did we do we do what we call pre-match what's pretty much we gain the full match in the beginning of the week let's say ten shillings and here's the tensioning it's waiting for you and if somebody puts funny we said oh you put 40 we're living for in we take six out so you see in the regular match somebody puts forty they get four more they say thank you in the pre match they get ten they realize that they should maybe try and get all of it to keep it then if they put 40 they see their money leaving their account by the way it's kind of amazing to work in the third world and realize you can take money out of people's accounts like it's a in the u.s. you couldn't unless you the government so we had tax text some kids 10% 20% beginning of the week end of the week and then we had their condition with the coin about this size with 24 numbers written on it and we said please put the coin somewhere in your hat and every week take a knife and scratch the number for that week week one two three four scratch it like a - if you didn't save scratch it up and down if you save now think about all of those methods which one do you think created the highest level of save so I read each of them and please vote and we'll see what the majority think how many people think that the regular text work the best nobody good they didn't work the best it worked but not the best how many people think the text from the kids work the best okay so I was interesting to do keep your hands up you see the ages of the people who still have hope that kids are and how many people think that 10% at the end of the week work the best 20% at the end of the week if you 10% in the beginning of the week we lost over 20% beginning of the week oh you work twice and how many of you think the coin worked the best okay so so I'll tell you what happened we gave the system to people and people started saving she's amazing right because what was the benefit of the basic system the only benefit was that it's impossible for you to take the money it's it's hard for you to take the money when you want it but some of them poorest people in the world wanted the system that it's only benefit is it would be hard for them to take the money out when they want to it's amazing and as a side story I'll tell you that when we got these results we call this sophisticated so what what we call naivete is somebody who said I'll go to a restaurant and they'll show me the Cheesecake and I'll say no thank you it's somebody who thinks they'll be able to control temptation when in fact they can sophisticated is somebody who comes in and said to the waiter don't show me the dessert tray right and and this is what happened in this in the control in the basic condition people wanted a system that will force them to behave better even though it had a cost to it they can't it's how to get the money back so we did we created another saving mechanism for health expenses imagine you're very poor you wake up in the morning you have some illness if you go to your doctor you're not sure the doctor will will help you and if you don't go you might get healed anyway right there's a possibility it will just go away but you know if you go to doctor there'll be a cost and then you have to choose do I pay the doctor and not have money for food later on so we create the system where people could put money in to an account and only approved health clinics could draw from that right and it's kind of it they don't have health insurance right so they basically put the money and then it's to pay for health expenses and the idea was it now you wake up in the morning and you feel sick and you say I'm not sure the doctor will cure me but they have this money that I have no other use for it so let me go to the clinic so we started this about three years ago we already have almost five million people in this plan which suggests that there is a real demand for mechanisms that help us with self-control and temptation but anyway back to our experiment we said we created their basic condition people wanted it text once a week helped a lot this wasn't the best but helped a lot people forget six months the program ran for six months and 10% at the end of the week help some more 20% day of the week just like 10% no difference 10% in the beginning of the week helps some more a 20% beginning of the week just like 10% no difference and the text message from the kids was just like 20% in the beginning of the week which is amazing it's amazing what motivation kids give to their parents and and from this perspective of course we we don't use kids enough so at the big the big surprise of the study was the coin the coin basically doubled savings compared to everything else and the question is why what was it about about the coin and I'll tell you how I how I thought about the coin so you know when we do experiments on drinking coffee we don't need to go anywhere right we've all had enough coffee we understand the process but when you do research on some of the poorest places in the world it's good to go and visit and try to understand what's going on what are the forces that play around so there's a particular week that I'm in South Africa and I'm I mean I mean it a very big town called sweater that has a very big slum I know there's one person from South Africa there's more oh the big group very good so so I let me come spending in Soweto and on that particular day I sit in a place that sells funeral insurance so there are people whom South Africa knows it and South Africa for the Africans here they spend a lot of money on funerals it's basically between one to two years of income they spend on funerals you know in the US and people spend crazy amount on weddings in South Africa it's funerals that that's people big a celebration of their of their lifetime weddings of modest funerals that's a lot expensive and and by the way it's more rational right because when it comes to a funeral you know you only have one anyway I I sit I sit in this place that sells funeral insurance and the father comes with his son and you know for father to takes his Sunday these kids in the slums work all the time they go and bring water they do all kind of thing there's a lot of work to be done but he brings his son and he buys funeral insurance for a week just to be clear what it means it will cover 90% of his funeral cost only if he dies in the next seven days right these are very poor people they sell funeral insurance for a week or for a month there's nothing longer in that place right he just happened to make some money today he has a little bit of money he buys funeral insurance for a week he gets the certificate and in a very ceremonious way give it to his son give it to his son I think to myself why the ceremony why bring his kid not to do work and to come with him and why the ceremony now think about the very poor father who just happened to make some money today and now he's going to put some of it in savings or in insurance what will the family see tonight they'll see less right you'll be less food less water less kerosene less something on the table then you know at that level of poverty the trade-off is very clear it's it's added today or tomorrow right that's what happened so what his father was doing was to tell his son yes there's going to be less food but there's another economic activity I've been taking care of you in another way and our coin was supposed to mimic that's that's there was the idea of the coin the coin was we asked him to put it in their heart somewhere visible in Kibera people don't visit each other's hearts these are miserable places but the family could see it and the idea wasn't as a record to the family about here we are there's another economic activity that is not visible like like food on the table okay so one comment I want to make is I told you about this simple model for behavioral change friction and fuel and friction is easy why because we look at the system and we say what's what what's extra here what can we take off fuel is more difficult adding motivation is more complex because human motivation is amazing and when we started we didn't know in advance would it be helpful to do kids text 10% 20% loss aversion the sailin see of the coins making something invisible visible we didn't know what would be best but that's why for friction and all the time you could just solve the problem without doing a lot of experiments from motivation and you have to do some experiments we don't always know what will create the highest motivation but I want to go back and talk a little bit about this idea of making the invisible visible so 2,000 years ago people basically saved in goats goats chickens and what's the good thing about saving in goats is we can come home from the office and we can see how many goats the neighbor has and we can compete on who is more goats we could compete on who has more savings then we invented the money and then we invented digital money and all of a sudden we took this activity called insurance and saving and made it invisible and we took this other activity called spending also very important magic extra visible just think about it how many of you know something about what your neighbors are saving or what their insurances and on the other hand how many of you know something about what your neighbors are spending much more right there's a tremendous asymmetry and if we don't if there's drawn asymmetry how can we pay attention to things that are invisible it was a very sad study that showed that when people win the lottery their neighbors start spending more money and in fact they spend so much money that some of them go bankrupt right and and and I know you said crazy Americans know these were Canadians okay so so now that we have this idea that making something salient is important we can ask the question of what else can we do with it so imagine the following experiment you take kids and the day that they are born and you divide them randomly to do group confront and group 2 in Group 1 you open college savings accounts for not your parents you the government local government opens college savings accounts for them and we put 500 dollars in these college savings accounts Group two nothing happens and then you let them go and then you go and visit those kids on their fourth birthday and what do you think is the difference in terms of social cognitive skills between the kids who have college savings accounts with 500 and the ones who don't there is why how come because do the kids know that they have college savings accounts the parents know exactly so once in a while the parents get this statement that says this little kid walks in the diaper already has a college savings account and what happened not big steps but they buy them a few more books they read a few more things to them small steps because it's salient all of a sudden now if you're a parent and you think about your kids all the time is going to college it doesn't wouldn't matter but if you don't think all the time of them is going to college and that would change what you focus on how you think about your kids even for a short time it could make a difference so with this data in 2017 we convinced the Israeli government to start to call it savings accounts for each kid on the data turbo and when we started this the very nice people from the Minister of Finance say why the hassle every charge that we call it saving let's just discount universities not the same thing and now we're in debate with them about when to send people the statement so we you can check it online of course but we want a couple once or twice a year to sell it to people as a paper state and people from the finance world want to send it when the end of the year it makes sense to them and I like early January people like us ones just like that one behavioral change want to send it when two weeks before it's semester why because for them it's a backward tool here's our money you accumulated so far for us it's a forward planning to the semester is coming let's get prepared in a in a better way I'll tell you one more experiment on on fuel in Israel is the biggest a Jammu is called Copa thoroughly clean and people set up medical appointments so they have they have this it's everywhere and they and they have a system that reminds people five days before and three days before they get a text message hey don't forget you have this appointment but even with those reminders that no show up rate is about 22 percent and by the way you get the text message you could say I'm not showing up like saying you're not showing up is great the worse is that you don't show up and you don't say that's and that's when you do percent so we looked at it and we said look at the text message is assuming that the problem is memory people just forget maybe we can add motivation so again imagine I asked you what kind of motivation the only thing we can't add money or anything in this case the only thing we have is to work with text message so we can only change the text that's our constraint what kind of things would you try no no let's say we're constrained to this right now keep getting texts what what motivation can we add no no no I said we can't do anything else it's already text okay okay okay what else very good what else contest oh so look there's lots of ideas right I mean we said motivation is complex because you can give money you can take money you can do contests there's other things to do we are constrained not just to the text so we said what can we do in the text we can say your doctor is waiting for you and give me the name of the doctor maybe the obligation to the doc we can send a nurse is well if you can give the name of the nurse we could say your kids really want you to be healthy we could say the HMO is going to lose 200 shekels if you don't if you don't show up we could say another patient could use the appointment if you don't do it anyway we tried lots of versions the one that one was another patient could use your spot if you don't use it it reduces the no-show rate to between 13 and 14 percent so from 22 to between 13 and 14 percent anyways in Israel it was a very nice news right that people cared the most thing they care about is somebody else anything it was a little bit disappointing didn't care about the HMO we did by the way after that we did like a big data analysis because we need this on slightly more than a hundred thousand people but you know different people are different so we said we got it down to let's say 12% we said could we do it better if we tailored a message for each person like we took people who are chronic no-shows and men and women and different illnesses and we did kind of a big data exercise and we could reduce it by 2 more percent with that so first approximation the same message for everybody's good but then you could get a little bit more out of it if you try to understand the individual characteristics of this and here again the question is you know can we add more motivation to of course there's many other ways to you think about how we how we add more motivation tell you what I think is there is the point of all of this if you think about what what should we as a society be very very proud of there's no question that over the last two or three hundred years we've made tremendous advances in improving our physical environment alright it used to be the Superman was all capable we were not and then we built planes and now we could fly and we build cars and now we can get very fast and we have amazing halls and we have stairs and chairs and think about your chair somebody worked very hard to figure out what is the ratio of cushion and that we need like our our bum cheek is a little bit too you know not soft enough so we we built we take every one of our physical challenges and we build around it we didn't take people and say become cold resistant we build heaters and clothes and all kinds of things like it basically created an envelope of technology that takes a fragile body and makes it makes us able to function in this world as if we're Superman in the process lots of wonderful things happen including extending expected life a lot but but life also became much more complex and and I think now we're facing with the question about what are the tools for mental world right so we have tools for our physical world for everything right we have things that remind us where our keys are it's amazing right every little thing we have things for that what about the mental exercises what about thinking about the long-term what about make decisions about health about savings about education what about those things - it's quite clear that if we assume that people are perfectly rational and we make all these decisions correctly that would not work it's like assuming that people can be called resistant instead I think we need to build those tools and what we're trying to do is kind of taking the first step into those so instead of giving people phones cell phones and cars and say just don't text and drive we need to develop the things that would make people help them behavior and that's that's a task and the good news that I think if we can make it will we can improve a lot you know we look we look at the state of the world and instead of the world is very sad and you can look at it and you can say oh this is the outcome of 8 billion rational people and this is the best we can get or you could say you know what this is the consequences of 8 billion irrational people working in the suboptimal system and there's lots of room for improvement so on one hand the behavioral economics perspective is really sad right you get to wake up every morning next to your significant other and say we're myopic vindictive emotional don't understand everything I mean we have all these flaws right it's it's a very sad realization to realize how flawed we are but then it also has the benefit of saying what we can do so much better if we just build a better a better environment so with this I will say thank you and I have a few minutes for questions comments concerns criticism [Applause] okay so you got two questions so behavior economics has lots of flavors let's start with economics economics really has two sides to it economic has a descriptive side in a prescriptive side the descriptive side says I have a theory of human behavior or human intention or humanity that's the descriptive side the prescriptive side is saying here is how you create a tax system or a hospital or education system the people who are looking more it economics is a descriptive study are doing much more theoretical work and was showing that people are not always transitive or that they are risk averse something that basically only economists care about the people like me I've changed over the years I was much more on that side I was telling economists you're wrong you're wrong you're wrong and I said I don't care so much but they're wrong it's I care more about the things that in the world that I don't like all right so so there's a think about the continuum between the people who care about economics let's get economics right and the people said I don't care about economics right I just want to create systems that work I'm much more in that camp I I don't think it would be good for universities to have lots of people like me but some people it's good right so so I'm I'm in that camp and doing all kinds of works to try to try and improve what what we do so that's that's one there's lots of flavors out there and you can do it through policy you could do it through business there's lots of places to the second question is why are we still not doing much better some of the cars are really stacked against us so think about eating you know donuts are really good and and they're getting better like what what do you think what do you think doughnut 2.0 will be more tempting or less tempting we have economics perspective is that we walk around the world and it's what is called choice architecture environment matters in almost every entity around us wants something from us now so every coffee shop wants you to buy another cookie today and every app wants you to check that app today who in your environment cares about your long-term well-being you know if we did we wouldn't text and drive I mean there's no evidence that we care but but you know in principle you would say maybe your significant other maybe your parent maybe a religion maybe the government but but the things in your immediate environment mostly has their own benefits that and their what their short-term benefit at your expenses so you go to the supermarket and you have a plan but the supermarket also has a plan and their plan is not the same as yours and they control the environment and who wins yeah so so what what happens is that we we created the world with a ton of temptation I'll give you one of our statistic on this in the u.s. everybody who passes away do an analysis of what they passed away from comes it's multiple things and you can ask these data based questions you can say what is the percentage of people who died extra early because they made some mistakes like a clear mistake is you drive drunk and you drive into a tree and you kill yourself right but you know smoking obesity and so on and about 100 it'll be at the beginning of the last century when this data started being collected the percentage was about 10 percent it was about the percentage of people who made bad decision and got to die a little earlier or a lot earlier make that decision lead to early mortality and the last time the estimation was 43% what happened are we getting dumber no temptation is getting much better right smoking obesity diabetes texting and driving all of those things are basically about the temptation industry it's just getting better and better and better and we need to realize what we're doing and we need to try and limit it and let me let me let me actually say one more thing about this we created a little app tamagochi turtle and the turtle in our app is happy as long as people exercise take the medication and eat one and it'll become less and less happy as long as people don't do it and until it finally goes back to its shell and it's very unhappy and we tested whether this turtle has much effect on people's behavior so then we gave our turtle superpowers what superpowers we we gave it the ability to delete other apps from people's phones so when we install the turtle that that analyzes what apps people use more frequently those are the first ones to go and and they come back every night and they get to disappear during the day and we only give it to people had heart surgery so I teach at Duke we go to people had heart surgery at our hospital and we set up you just had heart surgery and you think to yourself that you'll go home and you'll change but you'll eat better and exercise and take your medication but we know that it wouldn't work right so let us install this app on your phone you will never be able to delete this app only your doctor could but this Apple delete other apps on your phone and force you to behaves better and almost everybody wants that and and they live longer we started this three years ago and I'm saying it in a in a complex way because it's a very aggressive app it's very paternalistic it's very aggressive and and it's a question that I keep on debating I love human freedom I want people to be able to choose what they what they do if they choose texting and driving I'm not as happy with it and if people had heart surgery decide to go back to eating fried chicken and unhealthy food I'm not so sure where I fall on this so so so one difference between standard economics and behavioral economics is how much agency do you give people and how much constraint you give them and I don't have a good answer for this it's a I create a little online calculator that helps me figure out how paternalistic I'm willing to be so for example if people make retirement savings for example if you made the wrong decision you can't do it again you get to 65 so made a mistake too late right there's no second choice of if you can't regret it if there's a symmetry of information if the cost of the mistakes are big but I think it's one of the things we need to figure out is how paternalistic are we willing to be this works better in socialist countries where there's no choice there's no there's no question about that there's no question about this right so what happened is that look if if if there were no rules and we wanted to make the maximum amount of money possible what would we sell heroin right okay who's the cocaine but cocaine heroin I mean you know that's that's you know give one free sample and you're done you're good there's the thing and and I'm not saying sugar and heroin are the same thing but but but if you but if you say if you say if you're a supermarket you try to maximize revenue would you put tomatoes at the checkout counter or cookies right it's it's just the emotional path is just easier to just much easier to tackle and let me let me end by saying something maybe on religion there's a there's a guy called Ali Al Dessler wrote a couple of books called letters to Ali ow and and in one of in one of his thoughts he says if you saw that all the Jews from the least religious to the most religion one of the many differences that happens on this range is how many decisions we have to make all right if you are very secular you have to make all your decisions as you become more nor Orthodox more and more decisions are not up to you somebody else is is making them has made them for you and what is our union is some support to it is that as you move to add it to an environment in which more and more decisions you don't have to make you actually clear up some cognitive capacity to deal with the other decision sometimes called depletion right if you have to if you're being tempted all the time by all the decisions by the time the evening comes you have no more energy no we don't decision if decision are being taken for you so I'm not advocating religion necessarily it's a solution for that but but if you think about mechanisms like habits a personal rules and religion one of the things that you psychologically is to take some of this decision out out of for life for example anybody here is vegetarian vegan what yeah yeah so like like being being vegetarian for example and you say I'm not going to consider it you could say like I'm going to be 90 percent vegetarian it's not going to work right and you're always going to say is this the day is this the meal and so on making it complete really liberate us and allows us to live in there in a way that we okay last question so so I told you that from time to time I have an idea that I like that nobody else thousand I do a startup so so for a few years I have I have data about how companies track and treat their employees and I have this data it's 800 companies 800 American companies from 2006 until today on 80 different dimensions and what's the dimension and dimension is how good is the quality of furniture or our men we will treated equally or is the management has high follow-through all kinds of things like that and I basically tried to figure out what are the things that how companies treat their employees and how employees see the company that predicts success in the stock market it turns out there are some things that really matter and some things that don't matter for example and do you think that salary matters it doesn't matter salary doesn't matter a fairness in salary matters a lot a quality of furniture doesn't matter and I feel the response the question I feel that in this company all these mistakes are valued methods a lot so anyway what what we're doing is we are so we created initially I had a little paper on this and I then we decided to do a hedge fund so what we're doing is we're buying companies buying the stock market companies who are treating their employees well and we're shorting companies or treating the employees badly and we're trying to get people to think about this now just to be clear there are things that company could should do a lot of moral imperative not everything is financial like like but the things in our fund are like the first step the first step is to tell the companies here things that are good for you and for the employees let's do that first later on we'll have we'll have other things and we're trying to get to pass a law that will force all companies to start and publishing data about how they treat their employees so if you think about it it's very strange right every CEO stand on the stage and says my employees are the best thing I have but then if you look at yearly reports if a company buys a warehouse it's an investment if they invest in their employee it's a cost and there's something very strange about that so we're trying to force companies in their yearly report to start emphasizing human capital as a as an essence I know there's lots of work to do on this and we don't exactly understand everything but you know if you think about this notion of making things salient and visible that's still a principle right so we're trying to say we want you to measure the moment people start measuring they will start paying attention hopefully we'll start caring more so with this I will say thank you for your time in you you

Channel: Intown Jewish Academy

Views: 1,838

Rating: 5 out of 5

Keywords: psychology, judaism, israel, israeli, behavioral psychology, behavioral economics, economics, change, friction, motivation, mind, heart, action, rational, irrational, incentives, Dan Ariely, live, human, behavior, research, duke university

Id: 6Vyik6OejeI

Length: 62min 50sec (3770 seconds)

Published: Wed Mar 11 2020